In April, the U.S. economy added 263,000 new hires while the unemployment rate fell to 3.6%

Published May 11, 2019 at 7:42 PM

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In this January 4, 2019, file photo, a man carries a briefcase as he walks through the Financial District in New York City.

What to Know

Wage growth has been above 3 percent for nine consecutive months.

CFOs of major corporations in the U.S. tell CNBC in a new survey that cost of labor will be their biggest expense over the next six months.

The lack of wage growth had been a puzzler from much of the economic recovery.

The latest jobs report for April showed wage growth picking up steam. And it looks like employment income is going to stay moving that way, according to a new survey from CNBC of chief financial officers at major corporations.

Cost of labor will be by far the biggest cost that companies face over the next six months, according to the CNBC Global CFO Council Survey for the second quarter. In the U.S., companies citing cost of labor as their biggest cost is higher than in any other global region.

Eighty-five percent of North America-based CFOs surveyed by CNBC cited cost of labor as their biggest expense. That is up from 56 percent who cited it the last time the survey asked about the six-month costs outlook, in the fourth quarter 2018. Globally, 78% of CFOs cited cost of labor as their No. 1 future cost, versus 55% globally who cited in in Q4 2018.

The CNBC Global CFO Council represents some of the largest public and private companies in the world, collectively managing nearly $5 trillion in market value across a wide variety of sectors. The second quarter 2019 survey was conducted between April 23-30 among 45 members of the Council.

In April, the U.S. economy added 263,000 new hires while the unemployment rate fell to 3.6%, the lowest in a generation (since 1979), and surpassing Wall Street expectations. Many economists expect the tight labor market to continue for an economic expansion which is ten years old and within a few months could become the longest in history.

But one of the mysteries of the current expansion has been the lack of wage growth. During the long recovery from the financial crisis, unemployment has continued lower and hiring has strengthened, and companies have complained about increasing difficulty in finding skilled labor. Still, pay was not growing.

"We've spent several years going, 'Where is the wage growth? Where is the wage growth?'" Martha Gimbel, an economist for the job-search site Indeed, recently told the New York Times. "And it turns out we just had to wait a few years for the labor market to get tighter."

Warren Buffett recently remarked to CNBC on the current U.S. economic expansion, "No economics textbook I know was written in the first couple of thousand years that discussed even the possibility that you could have this sort of situation continue."

In the most recent monthly government nonfarm payroll report, average hourly earnings growth held at 3.2% over the past year, a notch below Dow Jones' estimate of 3.3% but it was the ninth-straight month that wages were above 3%. The monthly gain was 0.2%, below the expected 0.3% increase, bringing the average to $27.77.

Some of the minimum wage increases in cities and states across the country have helped. Nineteen states and 21 cities boosted minimum wages at the start of 2019, with some localities at $15/hour (more than double the federal level), including New York City. More government-mandated wage increases are occurring throughout the year, an estimated 21 states and 39 cities and counties in all, according to the National Employment Law Project.

"Wages may have been slightly tepid this month relative to expectations but are still growing at just about the highest rate this cycle, and the unemployment rate is at multi-generational lows," Eric Winograd, AllianceBernstein's senior economist, recently told CNBC.

The survey showed that as corporations are expecting to spend more on labor, they have been forecasting significantly less expense related to raw materials (a decline of over 20% citing it as the No. 1 expense from Q4 2018 to Q2 2019). The persistence of low inflation could be a factor. This week's elevation in the trade war between the U.S. and China, and the implementation of additional tariffs on Friday, could change some companies' view on the materials cost trend, though corporate respondents indicated a low level of overall concern about tariffs as a factor in the trade war.

Note: The CNBC Global CFO Council Survey for the second quarter was conducted from April 23 –30, 2019. 45 of the 124 global members responded to the survey (20 North America, 15 EMEA, and 10 APAC.)